W4 Flashcards
What we owe to the owners/owner’s claims or equity
Capital
“What we owe”
Liabilities
Long term assets, lifespan more than 1 year, for production/rental purposes
Non-current assets
Short-term assets, lifespan less than 1 year, used for trading purposes/sale
Current assets
“What I/we have”
assets
the period businesses use for preparing the financial statements, usually 12 months
accounting period
In the SFP, prepayments are considered as ______________, and accruals are considered ______________.
current assets; current liabilities
Formula for prepayment in 1 financial year
Total expense - prepayment amount
is not calculated in full in a financial year’s statement of profit or loss, as they usually extend past the period of 1 financial year
prepayment
arises where an expense has been paid before the statement of financial position date but the benefit of that expense will be experienced in the following financial year (paid, but not due)
prepayment
arises when an expense has been incurred but not paid for by the date when the SFP is prepared
accrual
money withdrawn from the bank > money stored in bank
Bank overdraft
meaning of bank loan (10%)
10% interest on bank loan
What are bank loans usually considered as?
Long-term loans
What does the accounting equation mean/entail?
That the assets must always be equal to the sum of the capital and liabilities.
To what is the statement of financial position similarly formatted?
The accounting equation
Shows assets = capital + liabilities
Statement of financial position
Net profit is not…
income
Meaning of nil.
nothing/zero
When is the trial balance drawn up?
At the end of each financial year, at the end of a financial period
A record of all the account balances at that point in time and is used to prepare the financial statements
trial balance
How is loss written?
It is written as a negative number
Expenses > gross profit
Loss
The inventory with which a company starts/at an initial point of a company
Opening inventory
What are inventories?
goods for resale held in stock by the business
Cost of goods sold in a period taking into account movements in inventories between the beginning and end of the period
Cost of sales
Leftover sales/leftover after sales
Closing inventories
Cost of sales formula
Opening inventories + purchases - closing inventories
In the statement of profit and loss, what kind of profits are shown?
The gross and net profit
Formula of net profit
Gross profit - expenses
Formula of gross profit
Sales - cost of sales
In the statement of profit or loss, ____________ are ignored and not calculated
assets
refers to expenditure where the business will benefit for more than 1 accounting period
asset
Amounts owed to suppliers of the business who, having supplied goods or services on credit, have not yet been paid by the business
Trade payables
Amounts owed by the customers to businesses who having been sold goods or services on credit, have not yet paid the business
Trade receivables
Recording revenues when they are earned and not received in cash, and recording expenses when they are incurred and not when they are paid
Accrual concept
Is a record (computer file) used to record book-keeping entries
Accounting ledger
The method of recording atleast 2 entries for each and every transaction
Double-entry book-keeping system
Assets, liabilities, and capital. Which statement is this?
Statement of financial position (Balance sheet)
A complete set of financial statements contains…
- The statement of financial position
- Statement of profit or loss
- Statement of changes in equity
- Statement of cash glow
Sales, gross profit, and net profit. Which statement is this?
Statement of profit or loss (Income sheet)
In a situation of trade payables occuring, at what moment is revenue is recognized?
When the goods are delivered to and accepted by the customer
Loans are _________. An interest on a loan is an ______________.
liabilities, expense
Furniture & fittings is an ____________
asset
